Sungevity Enters Chapter 11

Emily Engle

1 year ago

Sungevity, a residential solar company based out of Oakland, declared bankruptcy after making $850 million over nine years of business. The Northern Pacific Group, a private equity firm based in Wayzata, Minn. stepped up to buy the remaining assets, including equity interests in the European Operations of the solar sales and installation business. An asset purchase agreement in an action under the supervision of the court was formulated to achieve the highest available offer promising $20 million to fund daily operations. In short, Sungevity is now faced with the reality of decline that affects many Venture Capitalist startups, having raised $850 million in VC and project financing with an estimated $200 million as equity funding will be sold for up to $20 million.

William Nettles has been appointed as Sungevity’s new chief administration officer. In March, 66 percent of Sungevity’s remaining workforce experienced layoffs, following declines to pay severances or accrued vacation days. The company had let go dozens of workers in January as a result of the fall through of an expected merger with Easterly Acquisition Corp. at the close of 2016. This deal valued the solar company and consumer-acquisition platform at $357 million. Sungevity previously prided itself as being an “asset-light” residential solar company, possessing the ability to scale faster than vertically integrated leaders like SolarCity, Vivint and Sunrun.

Sungevity suffered the consequences impacting many VC and Wall Street backed companies; they lack tangible profits. Many startups receive subsidies and substantial investments to develop demand for their products in the hopes of later raising prices or having a large enough consumer bases to drive down production costs. Unless a company can monopolize a market, this does not necessarily lead to long-term profits. Instead, the company’s gained interest is accompanied by negative gross margins since they cannot retain support when subsidies are removed. Software companies always have some real cost component to carrying out business. Providers in the market who are not integrating the true costs, are in effect subsidizing the price of the service to gain market share. This is where Sungevity fell short, failing to secure long-term profits, leading to their decline.

Sungevity’s solar sales and installation approach of using software to generate quotes without site visits and the outsourcing of hardware, installation and financing was unable to mitigate cash burn. They reduced nearly to being a software company, as their sales became reliant on channel partners, and they did not perform financing or installation. Their focus on customer relations, bypassing investments in the capital-intensive portions of the solar industry, was unsuccessful in securing an image as neither a software nor installation company. Their market share peaked at 2.5 percent in 2014 and was at 1.6 percent in Q3 2016, and total capacity installed peaked in Q1 2016. In pursuing a label as a solar software startup and licensing its customer acquisition platform for installer use, it could have potentially dodged the financial drain of managing installations. However, this was not the case as Sungevity did not fit the criteria of being an installation nor software company.

In light of their current predicament, Sungevity filed “a number of customary pleadings with the court, seeking authorization to pay certain pre-petition obligations, support its business operations, and transition them through the sale process. These include the payment of employee wages, taxes, insurance, critical vendors, and utility providers, as well as the continuation of the company’s customer support programs.” A final sale should be closed by the end of April.